Real Estate Commissions

One of the top three questions Buyers and Sellers ask their real estate agent is what is your commission and why should you be paid that amount?  That’s a very fair question and if your agent cannot articulate their value to you to make you feel comfortable, you should find a great agent that can convince you of their value to you, and the transaction.  Buying or selling a home is one of the most important financial transactions most people will make in their lifetime.  The risks to the Buyer of; purchasing the wrong home, paying too much for a home, losing their Earnest Money Deposit, etc., etc., are pretty high and, a great agent can protect your best interests.  The risks to the Seller of; a transaction not “Closing” that will cause a lowering of the market value of the home, reducing the price when negotiating the inspection items from the Buyer, the agent not attracting the most likely buyers who would submit Offers to Purchase, not marketing directly to the 25 top real estate agents in the market, etc.

Let’s break down the commission paid to your agent.  Ninety percent (90%) of traditional real estate agents will pay their firms/agencies 25% to 35% of the commissions you believe go to your agent, leaving them with 65% to 75%.  Of that amount approximately 25% will go to federal and state taxes (15.3% goes to Social Security Taxes).  The agents’ business costs are approximately 25%.  So, of the 100% commission you believe your agent is receiving, they actually only take home 20% to 25%.

I love the new AT&T commercial with the gentleman in the hospital bed and his wife by his side.  His wife asks the nurse about the surgeon who will operate on her husband.  The nurse says “he’s OK”.  They can overhear the surgeon in the hallway telling a colleague that “he’s just been reinstated”.  When he enters the hospital room he asks the patient “if he’s nervous”.  The patient says “yes” and the surgeon says “me too but, we’ll get through it”.  To me, this sounds like a Seller or Buyer talking to a discount agent/agency.  The Buyers or Sellers have no idea whether the agent will represent their best interests.

Trades Professionals

It’s important for both Buyers and Sellers to line-up professionals in the building trades prior to submitting Offers or, accepting Offer to Purchase to assist them with the purchase and sale process.  Buyers and Sellers should identify 2 or 3 individuals in each of the building trades who can provide cost estimates for repairs within several days of contact.

Following a Buyers “General Inspection” of the home, their Inspector may recommend that an experienced expert; electrician, plumber, roofer, general contractor, etc. provide the Buyer with a cost estimate for correcting an issue with the home.  Buyers should have these professionals available on short notice to provide those estimates.  A Buyer should submit those detailed cost estimates to the Seller with their Inspection Response so both parties are very clear as to what the Buyer believes to be the issue and how the issue should be resolved.  The Buyer should request the Seller engage their professional do the repairs.

When a Seller receives the Inspection Response identifying an issue the Buyer requests to be resolved, the Seller should contact the appropriate trades professional to provide their recommended solution to the problem and provide their own cost estimate.  The Seller can then either engage the professional requested by the Buyer or, counter that request to have their own professional complete the work to the Buyers satisfaction.

If you have comments or questions about this article, please email me at smeyers@kw.com.

Steve Meyers is a Managing Broker at Keller Williams Realty in Seattle, Washington.  He can be reached at (206) 972-3328 or smeyers@kw.com.